Rowe & Ors v Revenue & Customs

It is common ground in this judicial review that public body decision making (whether executive or judicial) must be fair and must accord with the principles of natural justice; and if unfair, falls to be quashed. It is also uncontroversial that what fairness demands in a particular case is critically dependent on the context of the decision being taken. In R v Secretary of State for the Home Department ex parte Doody [1994] 1 AC 531, Lord Mustill, with the agreement of the rest of the Committee of the House of Lords, summarised the relevant principles as follows:

“(i)

Where an Act of Parliament confers an administrative power there is a presumption that it will be exercised in a manner which is fair in all the circumstances.

(ii)

The standards of fairness are not immutable. They may change with the passage of time, both in the general and in their application to decisions of a particular type.

(iii)

The principles of fairness are not to be applied by rote identically in every situation. What fairness demands is dependent on the context of the decision, and this is to be taken into account in all its aspects.

(iv)

An essential feature of the context is the statute which creates the discretion, as regards both its language and the shape of the legal and administrative system within which the decision is taken.

(v)

Fairness will very often require that a person who may be adversely affected by the decision will have an opportunity to make representations on his own behalf either before the decision is taken with a view to producing a favourable result; or after it is taken, with a view to procuring its modification; or both.

(vi)

Since the person affected usually cannot make worthwhile representations without knowing what factors may weigh against his interests fairness will very often require that he is informed of the gist of the case which he has to answer”.

It is the claimants’ case that these PPNs are peremptory demands for payment of money (that may or may not at some future time be established or assessed as equivalent to tax owed) within short time limits, backed by penalties. In that context they say that HMRC acted unlawfully by failing to give them a right to make representations before the PPNs were issued, and “the failure both to explain the basis for the asserted liability and provide the taxpayer with a proper opportunity to rebut such claims, constituted a serious breach of the fundamental principles of fairness rendering the decision unlawful”.

Mr Southern QC (on behalf of the claimants) submits that there is nothing in s.219, Sch 32 paragraph 3(1) or the statutory scheme as a whole, that prevents the discretion to give PPNs from being exercised in accordance with general principles of natural justice. Moreover, Parliament must be assumed to have intended that HMRC should exercise its powers in accordance with those principles given the invasion of property rights that is involved. He relies on Bank Mellat v Her Majesty’s Treasury [2014] AC 700 where Lord Sumption (with whom Lady Hale, Lords Kerr, Clarke, Neuberger and Dyson agreed) said (at [29]):

“The duty to give advance notice and an opportunity to be heard to a person against whom a draconian statutory power is to be exercised is one of the oldest principles of what would now be called public law. In Cooper v Board of Works for the Wandsworth District (1863) 14 CB (NS) 180, the Defendant local authority exercised without warning a statutory power to demolish any building erected without complying with certain preconditions laid down by the Act. “I apprehend”, said Willes J at 190:

‘that a tribunal which is by law invested with power to affect the property of one of Her Majesty’s subjects is bound to give such subject an opportunity of being heard before it proceeds, and that rule is of universal application and founded upon the plainest principles of justice.’

(See to similar effect, Lord Neuberger at [178]).

Given the absence of any right of appeal, or any of the ‘normal’ taxpayer safeguards, Mr Southern contends that it was critical that HMRC exercise the statutory discretion properly, including taking account of all relevant considerations, ignoring all irrelevant considerations and complying with the principles of fairness and natural justice. That was not done. The ‘post-decision’ reconsideration rights were limited; the grounds on which representations could be made were too restricted, involving no opportunity for any examination of the merits; the internal review was accordingly insufficient. The discretion was in effect operated as a rule, with PPNs given automatically on an industrial scale, and judicial review was inadequate to secure natural justice.

In deciding what natural justice or fairness demands, the starting point is the statutory scheme within which the PPNs were given. Fairness can be achieved (as the many authorities to which I was referred demonstrate) using different models and no hard and fast rule as to its content applies. The appropriate model will depend on the particular context and nature of the rights involved.

The essential features of the statutory framework here include the following:

The question in light of the statutory framework is whether the common law requires the imposition of any additional non-statutory obligations on HMRC to “explain the basis for the asserted liability and provide the taxpayer with a proper opportunity to rebut such claims” before the PPN is served. Where Parliament has prescribed a set of procedural protections, the courts should generally be slow to impose a further set of obligations as a matter of common law and “before this unusual kind of power is exercised it must be clear that the statutory procedure is insufficient to achieve justice and that to require additional steps would not frustrate the apparent purpose of the legislation”: Wiseman v Borneman [1971] AC 297 at 308C (Lord Reid).

I do not consider that the statutory scheme for giving APNs (including PPNs) is unfair or insufficient to achieve justice. I reach that conclusion for the following reasons.

First, the accelerated payment does not involve any determination of final liability, but rather, addresses where the tax should be held pending resolution of the dispute. So far as that question is concerned, Parliament has specifically addressed procedural fairness, and prescribed a procedure whereby there is a right to make representations before any payment obligation arises.

Secondly, the PPNs do not deprive the claimants of their statutory right to challenge the underlying tax liabilities, by way of appeal to the FTT (and such appeal rights have in fact been exercised here). Instead, their effect is that the claimants do not have the benefit of keeping the money pending resolution of the underlying appeal. In other words, the situation created by the PPN is temporary, and does not finally determine any tax obligations. That is not to diminish the potentially significant consequences for an individual, who might have to sell his or her house in order to fund the payment. However, that hardship was always a risk that might materialise in the case of a taxpayer entering a tax avoidance scheme without making provision for payment of the tax if the scheme failed. Moreover it is a feature that cannot have been lost on Parliament when enacting the statutory scheme. In any event, to the extent that hardship arises, that is relevant to the mechanics of payment, rather than to the fairness of the statutory scheme.

The impact of the PPNs in the present case is not comparable, both in terms of seriousness and immediacy with the effect of the statutory direction in Bank Mellat v HM Treasury [2014] AC 700 relied on by the claimants, and the statutory and overall context is significantly different too. Even if property or assets will ultimately have to be sold in order to make the payment, since the payment obligation is suspended pending consideration of representations, no immediate damage is likely to be suffered.

In Bank Mellat a statutory direction was made prohibiting all persons operating in the financial sector in the UK from entering into any transaction with Bank Mellat, a major Iranian commercial bank, on the grounds that HM Treasury believed that the development or production of nuclear weapons in Iran posed a significant risk to the UK’s national interests. The direction was described by Lord Sumption in terms that make clear why prior opportunity to make representations was necessary. He said at [37]: “A direction to financial institutions to cease business with a designated person is apt to achieve serious and immediate damage while it remains in effect, extending well beyond transactions related to nuclear proliferation. Even if it is set aside, the impact on the designated person’s goodwill may be substantial and in some cases irreversible.” Lord Sumption also noted in the same passage that “the recognition of a duty of prior consultation would not frustrate the purpose of the statutory scheme, nor would it cut across its practical operation.”

Moreover the scope of representations (extending to the statutory basis for the PPN and the amount, as identified in Schedule 32 paragraph 5) is adequate to ensure that fairness is preserved. This allows representations to be made challenging the rationality of the designated officer’s determination, based on his information and belief, both as to the efficacy of the tax avoidance arrangements and as to the amount. For example, as Mr Eadie QC submitted, if there was clear judicial authority (at whatever level) that a particular tax scheme was legally effective to produce the tax advantage asserted, that would be a basis for challenging the rationality of the officer’s determination in relation to a PPN involving the identical tax scheme. However, it does not allow representations on the wider basis contended for by the claimants, in effect challenging the merits of the decision by reference to the efficacy of the tax avoidance scheme itself. The merits of the underlying tax dispute is a matter to be dealt with in the statutory appeal. I agree with Mr Eadie that affording such a right would be inconsistent both with the purpose of the preserved statutory appeal rights, and the limited nature of the representations allowed under FA 2014. It is no part of the statutory scheme that before giving a PPN, there must be some final determination of the merits of the underlying tax avoidance scheme itself.

I do not accept Mr Southern’s submission that the requirement to make an accelerated payment acts as a disincentive to exercising appeal rights. To the extent that the tax scheme is regarded as legally effective by the taxpayers involved, the incentive to pursue an appeal in order to obtain the relevant tax advantage on a final basis will remain, whatever may be the interim position pending judicial determination. To the extent that a tax avoidance scheme is regarded as high risk, the position may be different but in those circumstances there could have been no certainty about retaining the tax advantage in any event. Moreover, this is precisely what the legislation was designed to address: the cash flow advantage obtained while tax disputes are investigated and resolved over a lengthy period.

Thirdly, protection is afforded by the statutory scheme to the taxpayer who succeeds in an underlying appeal to the FTT in relation to the disputed tax liability. If the appeal succeeds, the money paid under the PPN is refunded with interest. On the other hand, if the LLPs fail in the appeal, there would have been no justification for the claimants having had the cash flow benefit of holding the money. The claimants criticise the rate of interest afforded in this regard, but that cannot affect the fairness of the scheme. The relevant rate of interest is fixed not by FA 2014, but by Regulation 4 of the Taxes and Duties, etc (Interest Rate) Regulations 2011 (“Regulations”), made by HM Treasury pursuant to the powers given by s.103 Finance Act 2009. There is no direct challenge to that secondary legislation here.

Fourthly, there is also protection available to a recipient of a PPN in the availability of judicial review to challenge the lawfulness of the decision to give a PPN. Just as in Runa Begum v TowerHamlets LBC [2003] AC 430, where a judicial review jurisdiction, albeit exercised by a specialist tribunal was regarded as sufficient to satisfy the requirements of Article 6 of the Convention, the same is true here. Having regard to the subject matter of the decision to be reviewed (who holds the money on a temporary rather than a final basis, pending judicial determination of the underlying tax dispute); the manner in which the decision is arrived at by a designated officer reaching determinations to the best of his information and belief (and not on any final basis by determining the merits of the avoidance scheme); and the content of the dispute (whether the statutory conditions are met and as to amount), judicial review provides an entirely adequate safeguard.

So far as the designated officer is concerned, some criticism was made by Mr Southern of the absence of any evidence about the designation process or whether officers have in fact been designated. He argued that the duty of candour required an explanation and evidence about the whole PPN process including in relation to designated officers, irrespective of the scope of the judicial review challenge. I disagree. Nothing in the grounds for judicial review as initially advanced or by reference to the skeleton argument for this hearing raised any question as to this issue and it is unsurprising in those circumstances that there is no evidence from HMRC in this respect. In any event, Mr Eadie explained, on instructions, that officers have been designated and must be senior officers with approximately 10 years’ experience. There are internal governance processes ensuring that judgments made by designated officers are properly overseen. This accords with what was said by the Government during the consultation process, and there is no basis for doubting its accuracy.

Finally, Parliament has enacted a statutory scheme intended to operate broadly across a wide range of tax avoidance schemes to remove the cash flow advantage pending enquiry and appeal. Unlike in Bank Mellat, in my judgment the recognition of additional common law requirements as contended for by the claimants would frustrate the purpose of the statutory scheme and would cut across its practical operation. Given the nature of what is at stake when a PPN is issued, the existence of a right of appeal concerning the underlying tax liability, and Parliament’s intention in creating a procedural regime allowing representations to be made before any money is payable but only on the statutory conditions that must be met for lawfully giving the PPN and the amount, there is no justification for imposing on HMRC additional procedural protections of the kind alleged by the claimants. This ground of challenge accordingly fails.

In relation to Ground 2, the claimants challenge the lawfulness of the PPNs on the basis that Condition B, contained in Schedule 32 para 3(3) FA 2014, has not been satisfied:

“(3)

Condition B is that the return or, as the case may be; appeal is made on the basis that a particular tax advantage (“the asserted advantage”) results from particular arrangements (“the chosen arrangements”).”

By reference to Schedule 32 para 3(4) and Schedule 31 para 3(3), they contend that it will only be satisfied if (a) the return is made on the basis that an increase or decrease in an amount stated on a partnership return results from those tax arrangements and (b) the increase or reduction ‘results in that tax advantage for one or more of the relevant partners’.

Schedule 32 para 3(4) provides that:

“(4)

Paragraph 3(3) of Schedule 31 applies for the purposes of sub-paragraph (3) as it applies for the purposes of Condition B in section 204(3).”

Paragraph 3(3) of Schedule 31 adapts the legislation in the main body of FA 2014 concerning follower notices (as opposed to APNs/PPNs) and provides:

“For the purposes of Condition B in section 204 a partnership return, or appeal in respect of a partnership return, is made on the basis that a particular tax advantage results from particular tax arrangements if –

(a)

it is made on the basis that an increase or reduction in one or more of the amounts mentioned in section 12AB(1) of TMA 1970 (amounts in the partnership statement in a partnership return) results from those tax arrangements, and

(b)

that increase or reduction results in that tax advantage for one or more of the relevant partners.”

As indicated above, under s.12AB TMA, the partnership return must include a statement of “the amount of income or loss from each source”. This result is then allocated to the individual partner members, who can in turn set this loss off against their other income, either in the current year (known informally as “sideways” loss relief) or in the previous year (“carry back” loss relief).

Mr Southern contends that in a case where the ‘tax advantage’ for the relevant partner does not result in an increase or reduction in his income in the current year, it does not result from the increase or reduction of an item in the partnership return. Rather, the advantage results from the use which he makes of the share of partnership losses allocated to him, if and when he chooses to do so, by making a claim to carry back the loss relief.

In his submission, FA 2014 recognises the difference between returns and claims and makes a basic structural distinction between the two types of enquiry available under the TMA: enquiries into claims and enquiries into returns. Partnerships can only make returns; they cannot make claims that are not included in returns. Whereas partners can make claims that are not included in returns. He submits that Schedule 32 para 3(3) recognises this. The particular arrangements giving rise to the asserted advantage are those contained in the partnership return and transmitted to the relevant partner’s self-assessment tax return. The legislation anticipates that a tax advantage for the relevant partner may arise from the partnership loss but that is only for current year claims. A carry back claim cannot be included in the relevant partner’s self-assessment tax return and the chosen arrangements in the partnership return cannot therefore feed through into the individual partner’s return in such a case. The tax advantage accordingly, only results from the partnership arrangements in the case of current year claims. In the case of carry back or stand-alone claims, it results from the separate claim made by the individual partner. He submits that there are good policy reasons for this distinction: it respects the integrity of the tax system and the structural principles on which it is based.

I do not accept this argument. As Mr Grodzinski QC submitted, it ascribes an artificially narrow interpretation to the concept of “results in” that leads to an incoherent interpretation of the legislation for which there is no policy justification.

So far as these claimants are concerned, it was only necessary to issue a PPN if they had either used their purported trading losses to obtain (i) a refund of tax for an earlier year or (ii) a set-off against a current year liability to tax. In both cases they had a choice whether to do so or not. But after the filing date for the tax return, claimants who received a repayment and those who received a set-off were in the same economic position. Both received a tax advantage whether the share of losses was used in a carry back claim or in a current year claim. It is difficult to see any reason or policy justification why the legislation should exclude from its scope the right to issue a PPN where one rather than the other is used.

There is nothing in FA 2014 that differentiates between these two situations for the purposes of deciding whether the statutory pre-conditions are met. The PPN simply requires an amount to be paid which is equal to the amount identified in Schedule 32 para 4 as the “understated partner tax”, determined to the best of a designated officer’s judgment (para 4(2)). Further, Parliament defined “tax advantage” in s.201 FA 2014 to encompass both relief from tax as well as repayment of tax. By defining tax advantage in this way, it is evident that Parliament intended the PPN to operate regardless of the mechanics in which a taxpayer obtains the tax advantage (i.e. whether by way of repayment claim or set-off). Accordingly, Parliament cannot have intended to limit the concept of “results in” in the way contended for, so as to limit it to direct results only. That is too narrow and incoherent an approach.

In writing but not pressed orally, it was also contended by the claimants that under s.201 FA 2014, a “tax advantage” includes relief from tax but does not include being responsible for a share of a loss which, even on its ordinary meaning, cannot be seen as an advantage. Since the relief must be claimed or may not be claimed at all, it does not result from the partnership arrangement. Again I do not accept that argument. It is manifestly inconsistent with s.201(2) which defines “tax advantage” very broadly and as including a relief or increased relief from tax, a repayment or increased repayment of tax, avoidance or reduction of a charge for tax, etc.

Mr Southern also submitted that the PPNs determine an amount which does not fall within Schedule 32 para 4(2) because para 4(2) requires the officer to determine the amount of the ‘understated partner tax’, and under para 4(3), this is the amount:

“(3)… that would become due and payable by the relevant partner if…

(c)

in the case of a notice given by virtue of paragraph 3(5)(b) (cases where the DOTAS arrangements are met), such adjustments were made as are required to counteract so much of what the designated HMRC officer so determines as the denied advantage as is reflected in a return or a claim of the relevant partner.”

Mr Southern contends that no tax could ever become ‘due and payable’ on carry back claims where HMRC has not opened enquiries because HMRC is not able to assess to recover the repaid tax, whatever the outcome of the Ingenious appeals. This is because the only correct mode of enquiry (leaving aside discovery assessments) into carry back claims made outside a return (as the majority of these claims were) was an enquiry into the claim under Schedule 1A TMA, and no such enquiries were opened in these cases. He submits that this approach is supported by the decision of the Supreme Court in HMRC v Cotter [2013] UKSC 69, STC 2480 (SC).

Mr Southern’s argument has been rejected by Sales J (as he then was) in De Silva and Dokelman v HMRC [2014] UKUT 0170, as he recognises. Nevertheless, he submits that it is inconsistent with HMRC v Cotter and that the UT was wrong, and should not be followed. In any event, the decision has been appealed and will be heard by the Court of Appeal in October 2015.

It is common ground that the approach to be adopted in these circumstances, as a matter of judicial comity, is that I should follow the judgment of another judge of coordinate jurisdiction, which extends in this case to Sales J sitting in the UT exercising a judicial review jurisdiction, and that I should only depart from his judgment if I am convinced that it is wrong.

HMRC v Cotter concerned an individual self-assessment return. The issue was whether HMRC could enforce a tax debt in the county court based on Mr Cotter’s 2007/08 tax return. Mr Cotter had filed a tax return for 2007/08 on 31 October 2008 and, as he was entitled to, had left it to HMRC to calculate the tax due. HMRC did so on 24 December 2008 and the sum of £211,927.77 was calculated as the tax owed. After HMRC had carried out Mr Cotter’s tax assessment on his behalf, he wrote to HMRC in January 2009 seeking to carry back losses which he claimed arose from a tax avoidance scheme carried out in 2008/09. As a result, Mr Cotter claimed that no tax was payable for 2007/08. HMRC rejected the suggestion that the carry back claim was relevant to the year of assessment 2007/08 and left the figure due of £211,927.77 undisturbed. HMRC brought collection proceedings in the county court to enforce the tax debt for 2007/08 when this payment was not made by the due date, together with the amount due as the first payment on account for 2008/09. Separately, HMRC also opened an enquiry under Schedule 1A TMA in respect of Mr Cotter’s carry back claim and elected not to give effect to the claim until the end of the enquiry.

The issue before the Supreme Court was whether HMRC should have opened an enquiry into the 2007/08 return or whether HMRC were correct to have opened an enquiry under Schedule 1A into the carry back claim. This is addressed at [19] to [26] in the Supreme Court’s judgment, where it held that the carry back claim could not and did not purport to affect the tax due for 2007/08 and therefore HMRC were entitled to open an enquiry under Schedule 1A; and entitled to bring the action in the county court without giving effect to the carry back claim. The critical point determined is that a carry back claim, properly understood, does not affect the tax year to which it is carried back. Rather, pursuant to Schedule 1B it relates to the year of the loss and by Schedule 1B para 3 (2) TMA gives a credit for the year in which the loss arises, computed by reference to what tax would have been saved had the earlier year’s figures been adjusted by reference to it.

In De Silva, which unlike Cotter, concerned a partnership loss sought to be carried back by the individual partners, Sales J concluded that an enquiry into the partnership return for the year of loss, because it gave rise to a deemed enquiry into each of the partners’ returns under s.12AC(6) TMA, was sufficient to challenge any claims for loss relief flowing from such a loss (whether sideways or carry back). The critical paragraphs in De Silva are [55] to [66]. Far from being convinced that the judge was wrong, I am sure that he was right, and that the deemed s.9A enquiry into each relevant partner’s self-assessment return identifying (as required) his share of the loss claimed, is both an appropriate and sufficient means of challenging the loss relief utilised by the partner, both by way of sideways relief or as a carry back claim to the earlier year. I reject Mr Southern’s submission that such a challenge could have no practical effect. To the contrary, once included in the self-assessment return to which the loss relates, if enquired into whether directly or by means of a deemed partnership enquiry and subsequently disallowed, the disallowance of the loss relief is a disallowance for all purposes.

This ground of challenge accordingly fails.

Under this heading the claimants contend that because HMRC did not open enquiries into their carry back claims under Schedule 1A para 5, and instead met the carry back repayment claims at the time, they reasonably assumed that they could postpone payment of any disputed tax until the appeal had been determined at first instance. In other words, they had accrued s. 55 TMA postponement rights based on HMRC’s conduct, and the PPNs given in 2014 breached their legitimate expectation that those accrued rights would continue until the underlying appeals were determined. That was a regular practice, enshrined in the legislation, and they were entitled to expect that it would not be taken away retrospectively.

The applicable principles in this area are well established, and not in dispute. A legitimate expectation may arise from “the existence of a regular practice which the claimant can reasonably expect to continue”: see Council for Civil Service Unions v Minister for the Civil Service [1985] AC 374 at p.401 (Lord Fraser). However, in order to found a legitimate expectation, in most cases the promise or representation (whether based on practice or otherwise) relied on must be “clear, unambiguous and devoid of relevant qualification.” (see R v Inland Revenue Commissioners Ex p MFK Underwriting Agents Ltd [1990] 1 WLR 1545 at p.1570B and Davies & Anor v Revenue and Customs [2011] UKSC 47).

It is only in an exceptional case that a claim that a legitimate expectation has been defeated will succeed in the absence of a clear and unequivocal representation. An example of such an exceptional case is R v IRC ex p. Unilever plc [1996] STC 681 where the Revenue’s clear and consistent pattern of conduct, on 30 occasions over 20 years, of allowing Unilever’s claims irrespective of whether they were in time or late and in circumstances where strict compliance with the time limits was “a technicality utterly devoid of advantage to anyone”, made the circumstances, literally exceptional and justified the conclusion that, despite the absence of an unambiguous and unqualified representation, the Revenue had acted so unfairly in resiling from that approach that its conduct amounted to an abuse of power.

In Davies & Anor (see above) Lord Wilson explained at [49] that to elevate a practice into an assurance to taxpayers from which it would be abusive for HMRC to resile and to which HMRC should therefore be held by virtue of the legitimate expectation so created "the promise or practice…must constitute a specific undertaking, directed at a particular individual or group, by which the relevant policy's continuance is assured": R (Bhatt Murphy) v The Independent Assessor [2008] EWCA Civ 755, per Laws LJ at [43]. The result is that the “appellants need evidence that the practice was so unambiguous, so widespread, so well-established and so well-recognised as to carry within it a commitment to a group of taxpayers including themselves of treatment in accordance with it.”

Mr Southern emphasised that the repayment claims were substantial in many cases (Mr Rowe received £270,148 and Mr Worrall received £48,800) and that the claimants were entitled to assume that in taking the decision not to open enquiries but rather to make the repayments, HMRC had exercised their discretionary powers properly and by reference to all relevant considerations. The claimants have a procedural and substantive legitimate expectation that the statutory right to postponement having been exercised, it would not be removed by the retrospective application of a subsequently enacted discretionary power, as happened in this case.

Moreover, he submits that there was no overriding public interest that could justify HMRC resiling from these legitimate expectations. The FTT appeal will be determined in the near future, and the underlying tax liability will be determined finally. No ‘accelerated’ payment can be justified in the circumstances. Indeed given that the twin purposes of FA 2014 (namely to provide a disincentive for investing in tax avoidance schemes and to prevent taxpayers from using proceedings as a means of delaying payment) do not apply to the claimants (both because investment in the Ingenious LLPs occurred too long ago for any disincentive to act and because the appeals are so close to a conclusion) the discretionary power to give PPNs should not have been exercised in relation to the claimants in breach of their legitimate expectations.

I do not accept these arguments. First there is simply no evidence of a practice that was so unambiguous, so widespread, so well-established and so well-recognised as to carry within it a commitment to the claimants of continued treatment in accordance with it. Even if HMRC made “carry back” repayment claims in circumstances where it was open to HMRC not to do so, this did not prevent HMRC from opening (either then or subsequently) actual or deemed (by virtue of s.12AC(6) TMA) s.9A TMA enquiries into those losses contained in partner returns to challenge the efficacy of the tax planning. I have already concluded that such enquiries are sufficient to challenge any claims for loss relief flowing from such losses (whether sideways or carry back). Indeed, as recognised at paragraph 14(6) of Appendix II to the claimants’ skeleton argument, simply because the claimants received a set-off or a repayment of tax did not give rise to any expectation that this was conclusive. Rather as they accept they “understood that the relief claimed could be disputed if enquired into”. The position in relation to the tax represented by the repayment remained open to challenge, and there is no evidence of anything said or done by HMRC to suggest otherwise.

Secondly, since the new powers are contained in primary legislation, even if the claimants could have identified an expectation, based upon previous legislation or the practice adopted by HMRC, this cannot give rise to a common law right, enforceable in the Courts, constraining Parliament’s constitutional power to enact primary legislation which changes the previous position: see Wheeler v Office of the Prime Minister [2008] EWHC 1409 (Admin), per Richards LJ at [41]. Once FA 2014 came into force following the democratic processes entailed in the passing of primary legislation, no common law “legitimate expectation” could trump that legislative power.

As to Mr Southern’s argument that the statute itself did not prevent HMRC from honouring the expectations in this case given the existence of the statutory discretion which could have been exercised consistently with the legitimate expectations of these claimants, the difficulty with that argument is that a statutory discretion must be exercised consistently with and not running counter to, the primary legislation. The legislation, on its face, makes clear that it was intended to apply to existing as well as post-enactment schemes. FA 2014 expressly removes rights that previously existed under s.55 TMA in respect of all appeals (whenever made); and expressly extends the accelerated payment regime to all DOTAS schemes, irrespective of when those schemes were adopted, notified or when investments into them were made. The definition of “tax appeal” makes clear that it is not limited to appeals post enactment (see s.203 and Schedule 32 para 3(2)(b)). Similarly so far as the definition of DOTAS arrangements is concerned, there is nothing in FA 2014 to restrict its application to DOTAS arrangements invested in only after enactment: see ss.219(5) and (6). The definition extends for example to “notifiable arrangements to which HMRC has allocated a reference number” save for the express carve out in subsection 6. Parliament has accordingly legislated for taxpayers such as the claimants, who have chosen to participate in DOTAS arrangements (likely to be tax avoidance schemes), so as to remove the cash flow advantage of holding onto the disputed sums during a dispute concerning the efficacy of the avoidance scheme. The statutory discretion cannot be exercised in the manner suggested by Mr Southern consistently with the terms of the legislation

For all these reasons accordingly, this ground of challenge fails.

Although advanced in writing by reference to a series of different matters, the nub of the claimants’ contentions on Ground 4 is that the discretion to give PPNs was treated by HMRC as a rule so that there was in fact no exercise of discretion in these cases, and no consideration given to the reasonableness of giving a notice to an individual on the particular facts of his case. Instead, as Mr Southern described it, “all participants in schemes are being issued with notices; it is a mechanical exercise it is done on a blanket basis and on an industrial scale”. Consistently with that point, Mr Southern submits that there is no evidence to show that discretion was even exercised. He points to Ms Elsey’s statement at paragraphs 20 to 24 and criticises it as second-hand evidence and opaque. It reflects a prioritisation exercise (as does the Steering Group document to which she refers), and neither has anything to do with the exercise of any discretion. Instead he submits, HMRC adopted an approach where there was a presumption that participants in schemes would receive a notice and it was just a question of when they would do so rather than whether they should do so. This was an improper and unlawful approach to the legislation and failed to have any or proper regard to materially relevant considerations that applied in the claimants’ cases.

The question how a discretionary power should lawfully be exercised where the legislation is silent as to the matters to be treated as relevant by the decision-maker was considered in Khatun v Newham LBC (CA) [2004] EWCA Civ 55 by Laws LJ. He held that in such circumstances:

“it is for the decision-maker and not the court to conclude what is relevant subject only to Wednesbury review. …it is for the decision-maker and not the court, subject again to Wednesbury review, to decide upon the manner and intensity of enquiry to be undertaken into any relevant factor accepted or demonstrated as such.”

The FA 2014 identifies no “lexicon of the matters to be treated as relevant” once the statutory pre-conditions are met, and accordingly Parliament has conferred a discretion on HMRC to decide (subject only to rationality review) what factors to take into account.

Moreover as Mr Southern accepts, there can be nothing unlawful or inappropriate, in the decision-maker developing and applying a policy as to the approach to be adopted in the generality of cases, provided that the policy does not preclude the decision-maker from departing from the policy in an exceptional case: see British Oxygen Co v Minister of Technology [1971] AC 610; and see Assisted Reproduction and Gynaecology Centre v Human Fertilisation and Embryology Authority [2002] EWCA Civ 20 at [54]. This is a legitimate means of achieving consistency and certainty in decision-making.

Here, the claimants are correct that the approach adopted by HMRC as reflected in Julie Elsey’s statement, demonstrates that in the overwhelming majority of cases where HMRC consider that the statutory conditions are satisfied, HMRC will exercise the powers conferred by FA 2014 by giving APNs or PPNs, and the question is generally one of when, not whether, they will be given. However, that does not mean that HMRC’s discretion has been unlawfully fettered or turned into a rule without exception. In my judgment it has not.

A fair reading of Ms Elsey’s witness statement demonstrates recognition by HMRC of the statutory discretion conferred by the legislation, the adoption and application of a policy to be applied to the generality of cases, and express consideration as to whether users of the Ingenious scheme in particular, should be treated as falling into an exceptional category so as to justify not issuing notices in their cases.

Ms Elsey explains that HMRC excluded from the list of DOTAS schemes liable to be affected, schemes which HMRC accepted were effective and obsolete schemes with no users: [20]. The remaining schemes were ranked in terms of priority for issuing notices: [21] and [22]. The question whether notices should be issued when litigation and/or settlement was imminent was considered by the Accelerated Payments Steering Group at a meeting on 10 June 2014. The paper put to the Steering Group addressing the implications of issuing notices in such cases recommended, for the reasons set out, the issue of notices regardless of when the scheme would be litigated and where potential settlement was imminent. The Steering Group approved the recommendations: [23].

At paragraph 24 Ms Elsey states:

“Following the prioritisation exercise I have described above each scheme identified was subject to a detailed review by the technical lead, with input from other officers, for example those responsible for the particular specialist issues raised by the challenge to a scheme. The purpose of that review was to identify any reasons why notices should not be issued to users of an identified scheme. No such reasons were identified for the Ingenious schemes. I note that the Claimant suggests that the notices ought not to have been issued because the hearing of the Ingenious tax appeals was imminent. Consistently with the decision of the Steering Group to which I have referred above, HMRC decided that this was not a reason to delay issuing notices. ”

Given the nature and purpose of PPNs (namely to accelerate the payment of tax considered to be due, by removing the cash flow advantage and requiring a payment on account of the disputed tax to be made before resolution of the underlying dispute), there is nothing wrong in my judgment, with a general rule that when the statutory criteria are met, the discretion will be exercised by issuing the notice, save in exceptional circumstances.

So far as the asserted materially relevant considerations contended for by the claimants are concerned, as Mr Eadie submits there is a danger in circumstances where HMRC have an obligation to treat like cases consistently, that the suggested consideration if accepted becomes a mandatory one and undermines the legislation. If Parliament had intended to limit the APN/PPN regime to new investments in tax avoidance schemes made only after the enactment of FA 2014, it could easily have done so; but it did not. The prior existence of the claimants’ scheme was not a relevant consideration within the “statutory lexicon” (Khatun, above). The same point is true in relation to the fact that HMRC met repayment claims some years ago. There is nothing in the legislative scheme to justify a conclusion that FA 2014 was intended to work differently depending on whether carry back, rather than sideways, loss relief tax avoidance schemes are in issue. Further, as already indicated, the claimants do not and cannot assert that the making of repayments prevented HMRC from subsequently opening enquiries into the efficacy of their tax avoidance schemes. Moreover, at the time the repayment claims were met, there was no power to issue PPNs even if there were other statutory provisions available affording HMRC power to postpone repayment. As for appeals in these cases being well advanced, this was in fact recognised and addressed by HMRC before issuing the PPNs. As Ms Elsey explains, HMRC concluded that this was not a sufficient reason to refrain from giving PPNs, and this view cannot be described as irrational.

Finally, as for hardship or “human suffering”, seen in the context of participation in tax planning that always carried risk, to require the claimants to make payments now on account of disputed tax, pending determination of the underlying appeals, in circumstances where they have had up to 10 years’ worth of the benefit of the ‘avoided tax’, it is difficult properly to characterise this requirement as “significant human suffering”. In any event, HMRC have accepted that hardship can be considered, albeit not in order to avoid the requirement to make an accelerated payment but rather in an appropriate case to agree upon “time to pay” arrangements with a taxpayer who cannot pay in full immediately: see Julie Elsey at paragraph 26. In fact HMRC have adopted a policy of issuing pre-cursor or advance warning letters before issuing a PPN inviting the recipient to identify whether they would have problems paying or if they had any health or personal circumstances which would make it difficult for them to deal with the matter. This was done in the case of each of the lead claimants, but neither responded.

For all these reasons I do not accept that the decision to give PPNs in this case was irrational or unreasonable on any of the bases contended for by the claimants.

The claimants contend that the decisions to give notices in their cases infringed their rights under Article 6 (the right to a fair trial) of and A1P1 to the Convention. I deal with each of these arguments in turn.

Ms Simor QC, on behalf of the claimants, accepts that PPNs can be given lawfully and compatibly with Convention rights because although amounting to an interference with possessions, there are cases where such interference will be in accordance with law and both justified and proportionate. She submits however (by reference to a great many Strasbourg and domestic authorities), that the issue of the PPNs to these particular claimants gives rise to four separate interferences with their enjoyment of property rights as guaranteed by A1P1: (i) it interferes with their statutory rights pursuant to s.55 TMA to retain control over the money and to hold it until the underlying tax dispute is determined by the FTT; (ii) based on the argument that the only way in which the carry back claims could be enquired into was under Schedule 1A TMA and no such enquiry was opened, where repayments have been made under Schedule 1A para 4(1) that created a crystallised right to that property, subject only to a discovery assessment, and the PPNs have interfered with those rights; (iii) the claimants have arguable claims based on well-established legal principles, that they are entitled to the loss relief, the only dispute being on the facts and the result being in no way predictable, so that the money itself is a possession that has been interfered with; and (iv) the PPNs amount to an imposition of tax which is in any event an interference with their property. Accordingly the claimants have both legal rights to and legitimate expectations of accrued substantive and procedural rights to hold the money until resolution of the tax dispute. The money so held is either a possession in law or in accordance with legitimate expectations (as understood by Strasbourg authority); or the claimants have arguable claims in Strasbourg terms to hold the money because there is no dispute as to the interpretation or application of the law in relation to the underlying dispute and no final decision has yet been made.

Furthermore, Ms Simor contends that each of these interferences is unlawful in this case because they were not ‘prescribed by law’: these PPNs apply legal consequences to past actions and alter legal rights that arose in the past. They could not have been foreseen by the claimants, who could not have regulated their conduct to avoid them. This obviously relevant factor was not considered by HMRC. Further they were neither necessary in the sense of being rationally connected to the policy objective of the legislation nor proportionate in the sense that they imposed an excessive burden on the claimants, which could not be justified by reference to any general public interest. That is particularly so having regard to the absence of sufficient procedural safeguards, HMRC’s failure to take account of their individual circumstances in issuing the PPNs, and the retrospective effect of the PPNs. Given the imminent resolution of the underlying dispute, there is no need for payment now and to require payment now will cause significant hardship.

Against that, HMRC contend that there has been no interference with A1P1 rights because A1P1 is not engaged: the claimants have no established right to, or interest in, the sums payable under the PPNs, since it has not been established that they were ever entitled to the tax deductions in the first place. Nor has there been any retrospective removal of a right to postpone payment of the disputed tax. Rather the claimants are no longer being allowed the benefit of that postponement. Alternatively and in any event, HMRC contend that any interference is prescribed by law, justified and proportionate.

Article 1 Protocol No.1 provides:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No-one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

The first question to be determined is whether A1P1 is engaged because there has been an interference with the claimants’ “possessions” as that term is properly understood.

It is common ground that the general principles to be applied in determining whether A1P1 is engaged are set out in Kopecký v Slovakia (2005) 41 EHRR 43 (see [42] to [52]). The Strasbourg Court held that a possession can be an existing asset or a claim in respect of which an applicant can argue that he has a legitimate expectation that the claim will be realised. However the Court concluded that its case-law did not contemplate the existence of a “genuine dispute” or an “arguable claim” as a criterion for determining whether there is a “legitimate expectation” protected by A1P1 but rather, “where the proprietary interest is in the nature of a claim it may be regarded as an “asset” only where it has a sufficient basis in national law, for example where there is settled case-law of the domestic courts confirming it”: [52].

In this case, the claimants completed self-assessment returns pursuant to s.8A TMA setting out their personal income and gains for each relevant tax year. So far as the Ingenious LLP loss claims are concerned, although they made carry back loss relief claims seeking to set off their share of the partnership losses against personal income in the earlier year to that to which the partnership losses related (Year 1), they were nevertheless obliged by s.8 (1B) TMA to include a statement of the partnership losses allocated to them in their self-assessment returns for the period to which the losses related (Year 2). This was information included in the Year 2 return “for the purpose of establishing the amounts to which a person is chargeable to income tax and capital gains tax” for that year of assessment and for establishing “the amount payable by him by way of income tax for that year”: s.8(1) TMA. It is only if those partnership losses can be brought into account for Year 2 that a right to carry back those losses can arise in relation to Year 1. HMRC challenged the claims to bring into account the partnership losses in Year 2 as a foundation for carrying back the benefit of those losses to Year 1 by enquiry into the partnership return and partnership statement and hence by way of deemed enquiry under s.12AC(6) TMA into each partner’s Year 2 return (the s.9A enquiries). This was a lawful means of challenge to both Year 2 and Year 1 loss relief and was exercised by HMRC in all these cases.

Accordingly, in each case income tax was payable by each claimant. The investment in the Ingenious LLPs and the losses consequently allocated to them, afforded the claimants a basis for claiming that their income tax liability should be reduced to reflect those losses. Although repayments reflecting the reduced tax liability were made, this was not in any sense a final determination, and the claims were (and were known to be) subject to possible challenge. The claimants’ entitlement to reduce their liability by setting off their share of the partnership losses (for either or both years) was fundamentally challenged by HMRC. The outcome will depend, among other things, on whether the LLPs were carrying on a trade; whether they were doing so with a view to profit; whether they incurred expenditure equal to 100% of the budget of the film; whether the expenditure was incurred wholly and exclusively for the purposes of their trade; and whether losses were computed correctly as a matter of GAAP.

Accordingly, I do not accept Ms Simor’s argument (seeking to avoid that analysis) that because a taxpayer is chargeable to income tax on net amounts which take account of relief or allowances and because ss.380-381 afford a statutory entitlement to deduct trading losses from other profits in the same or earlier years, the sums in question are entitlement and possessions. She relies on a passage in Unilever at p.690 (Sir Thomas Bingham MR): “The taxpayer’s entitlement to deduct trading losses from other profits in the same year, although provided by statute, gives effect to a very basic principle. A tax regime which did not provide such an entitlement could scarcely be regarded as equitable.…”. But this passage does not support her argument: there was no suggestion that the trading losses in question in Unilever were anything other than allowable, the only question being whether Unilever had forfeited an undoubted right to claim same year loss relief because of a failure to achieve strict compliance with time limits regarded as nothing more than a technicality.

The question in these circumstances is whether the money representing the reduced tax liability (or loss relief claim) held by the claimants pending the determination of the dispute is an existing asset or possession for A1P1 purposes. So far as the money itself is concerned, that is affected by the argument as to whether it is payable to HMRC. As Vos LJ held in APVCO 19Ltd and others v HM Treasury & Anor [2015] EWCA Civ 648 at [46]:

“Of course, the money is a possession in one sense, but it is a possession impressed with an arguable claim by HMRC, which prevents it being properly regarded as a possession for A1P1 purposes.”

Both sides claim to be entitled to the money but nobody yet knows to whom it properly belongs, and the mere fact that it is held for the time being by the taxpayer does not make a difference.

Nor in my judgment can the claimants be said to have possessions in the form of claims in respect of which they have a legitimate expectation that they will be realised. Following Kopecký a “legitimate expectation” protected by A1P1 of such a claim cannot simply be based on the existence of a “genuine dispute” or an “arguable claim”. There must be as a sufficient basis in national law, for example where there is settled case-law of the domestic courts confirming it.

This question has been addressed in similar contexts in a number of domestic cases. In ToTel v FTT [2011] STC 1485 a challenge under A1P1 to the obligation to pay VAT as a pre-condition of bringing an appeal was rejected by Simon J. Although this decision was subsequently reversed by the Court of Appeal ([2012] EWCA Civ 1401) that conclusion was reached on the basis that the delegated legislation in question was ultra vires the enabling legislation and A1P1 rights were not addressed. At first instance at [122] Simon J held:

“Whether or not the claimant has complied with all the conditions for claiming input tax is the substantive issue between the claimant and the Commissioners.  Until that issue is resolved it is difficult to see how the claimant can have a legitimate interest which could amount to a property right.”

In Huitson v HMRC [2012] QB 489, [2011] EWCA Civ 893, Mummery LJ rejected at [67] the argument that the judge below erred in failing to find that the claimant had a proprietary interest in a sufficiently established claim to tax relief to give rise to a legitimate expectation that would attract A1P1 protection. He explained at [68] that the emphasis on appeal in relation to this issue had changed and the case advanced now addressed the deprivation by retrospective legislation of the claimant’s possession in the form of the alleged proprietary interest in the nature of his claim to tax relief. He held at [69]:

“The ‘claim’ to tax relief under the DTA is one which has neither been accepted by HMRC nor has it been made out in any tribunal or court.  All that has been established is the existence of a genuine dispute about whether the scheme based on the claim for tax relief under the DTA worked.”

In this case, similarly, the claimants’ claims to loss relief have not been established and depend on the application and interpretation of the relevant legislation to the Ingenious LLP scheme. There is a genuine dispute about their entitlement to the relief. Accordingly they have no legitimate interest amounting to a property right that has been interfered with by the PPNs, since it has not been established that they were ever entitled to the tax deductions in the first place: this is the very issue being litigated in the FTT. 

Furthermore, the decision in APVCO 19 Ltd and others v HM Treasury & Anor is binding, clear authority that legislation can remove without any interference with possessions, a taxpayer’s argument that had existed previously (that HMRC was not entitled to the money) with the result that tax is payable and the money in the taxpayer’s hands must fund it. In those circumstances it is difficult to see why a different result should follow from the lesser step of legislation requiring the disputed sum to be paid on account of the tax (but without finally determining liability) pending resolution of the dispute.

In the light of that reasoning, the fact that there was a statutory right to hold the disputed sums pursuant to s.55 TMA, pending resolution of the dispute, does not alter the position. That entitlement was removed by the amendments made by FA 2014. The amendments were not retrospective: the claimants have had the benefit of the money for a prolonged period and are not being required to account for that benefit in any way. The amendments apply prospectively. In any event, to the extent that the sums in question are impressed with an arguable claim by HMRC, they cannot properly be regarded as a possession for A1P1 purposes. Merely because those sums must be paid on account pending resolution of the dispute does not convert them into possessions.

Despite my conclusion that A1P1 is not engaged by the issue of PPNs to these claimants, I will in any event address the question whether there was an unlawful interference with A1P1 rights on the footing that A1P1 is engaged.

The applicable principles are not in dispute. They are set out in the judgment of Lord Reed in AXA General Insurance Limited v HM Advocate [2012] 1 AC 868 at 116-124. The existence of a legal basis in domestic law is a necessary but not sufficient condition. The measure must be clear and precise in its terms; sufficiently foreseeable; and must not operate in an arbitrary manner (this latter requirement is not incompatible with the existence of discretion). The effect of these requirements in any particular case will inevitably depend upon the context and circumstances involved.

Particular emphasis in this context was placed by Ms Simor on the requirement of foreseeability. In Vistinš and Perepjolkins v Latvia (App no.71243/01) the Strasbourg Court held that the scope of the notion of ‘foreseeability’ depends to a considerable degree on the content of the instrument in issue, the field it is designed to cover and the number and status of those to whom it is addressed: [96]; and further that a rule is “foreseeable” when it affords a measure of protection against arbitrary interferences by public authorities and provides minimum procedural safeguards commensurate with the importance of the principle at stake: [97]. (See Hentrich v France (App. No 13616/88) for an example of a case where minimum safeguards were not provided).

Ms Simor also contends that the concept of ‘foreseeability’ requires that the law is sufficiently clear and certain to enable an individual to regulate his conduct: Sunday Times v United Kingdom (1979-80) 2 EHRR 245 at [49], so that “he must be able – if need be with appropriate advice – to foresee, to a degree that is reasonable in the circumstances, the consequences which a given action may entail”.

Retrospective tax legislation is not prohibited. Its effect is generally considered by the Strasbourg court in its assessment of proportionality rather than when considering the lawfulness of the interference. In NKM v Hungary [2013] STC 1104 at [51] the Court expressly recognised that retroactive taxation can be applied to remedy technical deficiencies of the law, in particular where the measure is ultimately justified by public-interest considerations.

I agree with Mr Eadie that the question whether the interference is prescribed by law is to be answered by reference to the legislation permitting the PPNs that are said to interfere. To the extent that Ms Simor’s submissions suggested otherwise, I disagree with her.

The measure in question involves a requirement to make an accelerated payment pending resolution of a tax dispute in cases where tax avoidance schemes have been used. Underlying appeal rights in relation to the disputed tax are preserved and the avenue of judicial review is available to challenge the lawfulness of a decision to give a PPN. I have already dealt above with the other procedural protections available (including the opportunity to make representations before any payment obligation arises) and concluded that they are more than adequate.

These circumstances cannot be compared to the circumstances in cases like Vistinš and Hentrich v France where permanent appropriation by the state was in question, and where the ECHR described the power as being exercised “arbitrarily”. Simply because HMRC have a discretion does not render the issuing of PPNs unpredictable in any relevant sense.

Although FA 2014 confers a discretion on HMRC to give PPNs, that discretion is neither open ended nor uncertain. The statutory requirements that must be met as conditions for giving notices are clearly identified and capable of being objectively ascertained. This is particularly so in light of the approach adopted by HMRC of giving notices where the statutory conditions are met, save in exceptional circumstances.

So far as foreseeability is concerned, at paragraph 126 of their skeleton argument the claimants assert that “if they had known that participating in a business notified under DOTAS meant that monies contributed would be claimed by executive act some 10 years later at short notice and prior even to any enquiry or assessment to tax, it is highly unlikely that they would have made the investment”. This is untenable. The primary risk to the claimants was not precisely when they might have to pay the relevant tax, but whether they would have to pay it. That was a risk that must have been well understood and for which financial provision can be expected to have been made. At the time they participated in the schemes, the claimants could not have known when HMRC’s enquiries and any FTT appeal process would end. It was possible that the appeal process could have concluded much earlier, with a consequential requirement to pay the disputed sums.

For these reasons and in respect of retrospectivity, the further reasons set out below, the PPNs were prescribed by law.

So far as proportionality is concerned the interference must be in the general interest and “there must also be a reasonable relationship of proportionality between the means employed and the aim sought to be realised. This involves an assessment of whether a fair balance has been struck between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights: the individual should not be required to bear an individual and excessive burden…”: AXA at [126].

In the area of taxation measures in particular, in determining whether a state has met the requirement of fair balance/proportionality, the relevant test was explained by the ECHR in Bulves v Bulgaria [2009] STC 1193 at [63]:

“However, in determining whether this requirement has been met, it is recognised that a contracting state, not least when framing and implementing policies in the area of taxation, enjoys a wide margin of appreciation, and the court will respect the legislature’s assessment in such matters unless it is devoid of reasonable foundation”

The concept of the margin of appreciation recognises that there may be circumstances where a public authority is better placed than the courts to determine how the individual and community interests should be balanced so that weight should be given to the decisions of public authorities within the discretionary area of judgement accorded to them when addressing whether the individual concerned has had to bear “an individual and excessive burden”: James v United Kingdom (1986) 8 EHRR 123 at [50]; Hentrich v France.

Thus as noted by Barling J in Allan v HMRC [2015] UKUT 16 (TCC) at [40]:

“In the light of these principles the hurdle for those alleging infringement of A1P1, particularly in the context of taxation provisions, has understandably been described as ‘very high’ (see, for example, paragraph 60 of the recent judgment of Mrs Justice Andrews in R(on the application of St. Matthews (West) Ltd and others) v HM Treasury and HMRC [2014] EWHC 1848 (Admin). Tax measures are seen as entitled to particular deference in the light of the second paragraph of A1P1 itself”.

Barling J identified only two cases in which the Strasbourg Court had held that the wide margin of appreciation had been exceeded so as to result in an infringement of A1P1 rights in the tax context. These were Hentrich and R.Sz v Hungary [2013] ECHR 41838/11 (see paragraphs 41 and 42 of Allan) but in his view, with which I respectfully agree, these two cases “involved extreme circumstances: in Hungary there was an un-signalled, retrospective and discriminatory tax charge amounting to almost total deprivation of benefits designed to serve a social purpose, namely to protect an employee on termination of his or her employment. In Hentrich the state had arbitrarily exercised a rarely – used right of pre-emption to deprive the applicant of land she had purchased, in circumstances where she had no effective recourse to legal challenge. It is interesting to note that notwithstanding the “individual and excessive burden” which the applicant was held to have borne as a “selected victim of the exercise of the right of pre-emption”, the measure would still have been within the margin of discretion available to the state if the applicant had had an effective means of challenging it.”

In addressing proportionality here, the relevant context is that Parliament has, following consultation, decided to change the presumption of where the tax sits during a dispute concerning a tax avoidance scheme and remove the cash flow advantage of participating in such schemes. Such a measure clearly falls within the wide margin of appreciation afforded to the democratically elected legislature. Given that the DOTAS registration scheme was set up as a means of identifying those using tax avoidance schemes, to include DOTAS schemes within the accelerated payment legislation is an obviously rational response. Structures that are notified under DOTAS have characteristics or ‘hallmarks’ of avoidance and it provides a clear and objective criterion that can be readily operated by taxpayers and their advisers. For DOTAS disclosures made on a purely precautionary basis, there is likely to be little or no additional tax liability so an APN is unlikely to arise. There is nothing in the legislation or its application which can properly be said to be arbitrary. It is accompanied by appropriate procedural safeguards, including effective means of challenge.

So far as retrospectivity is concerned, Ms Simor relies on the stance taken by the Government during the consultation process and the Parliamentary debates, that the legislation was not retrospective. In her submission, there is nothing in the legislation that requires it to operate retrospectively and it would therefore accord with the legislative purpose for HMRC’s discretion to give notices to be exercised only in respect of investments in DOTAS schemes that took place after it came into force on 17 July 2014.

In my judgment, the legislation is not retrospective in the true sense of the word: the requirement to make accelerated payments on account of tax applies only with effect from 17 July 2014. For anyone who has had a repayment of disputed tax in the past, that benefit has been enjoyed and the legislation makes no attempt to claw it back (by requiring such a person to account for interest etc). Nevertheless I accept that it does have an element of retrospectivity in the sense that it applies to schemes invested in in the past and to appeals already made. Those elements are apparent on the face of the legislation, in the definitions adopted as to the reach and scope of FA 2014 as already described. They were understood and recognised by Parliament, and it was competent for Parliament acting within the margin of appreciation, to draw the line in this way. Although not a basis for reaching that conclusion, the ability to make ‘time to pay’ arrangements supports it.

There is a reasonable relationship of proportionality between the means employed and the aim sought to be realised in this case. The disincentive to use new tax avoidance schemes was not the only purpose of FA 2014. Parliament’s intention was generally to remove the cash flow advantage of participating in such schemes, regardless of whether the participation was before or after FA 2014 and by necessary implication, to give that cash flow advantage to the Exchequer. The claimants have had a significant cash flow advantage (whether they sought it or not) and this advantage would have continued but for the PPNs, albeit that the appeals in their cases may come to an end sooner than in other cases involving PPNs.

To reverse that cash flow advantage by giving PPNs now (irrespective of the stage reached in existing appeals) is consistent with the legislative purpose. The claimants have chosen to enter tax avoidance schemes that were liable to challenge and the efficacy of which necessarily takes time to resolve. Even if required to borrow money or sell assets as a consequence of the PPNs, in my judgment it cannot be said that these measures which shift where the money sits in the interim, impose so burdensome, arbitrary, unfair or excessive an interference on the claimants, compared to the general body of taxpayers, who have not chosen to enter such schemes.

This ground accordingly fails for all the reasons set out above.

Finally, the claimants contend that the PPNs are not tax but are peremptory demands by HMRC for payment of monies that may or may not in the future give rise to liabilities that are subject to a penalty regime for non-payment, and therefore they determine civil rights under Article 6, and do not concern liability to tax as was the case in Ferrazzini v Italy [2001] STC 1314. The claimants have therefore been deprived of a fair and public hearing before the FTT. Alternatively, they involve a criminal charge because they are a surcharge with a deterrent and punitive purpose, applicable to a definable group, and involving punitive consequences, within the meaning of Jussila v Finland [2009] STC 29 at [31] to [39].

I do not accept either argument. Article 6 does not apply when the state determines a person’s liability to pay tax: Ferrazzini v Italy and Jussila v Finland. In Ferrazzini the ECHR stated at [29]:

“In the tax field, developments which might have occurred in democratic societies do not, however, affect the fundamental nature of the obligation on individuals or companies to pay tax. In comparison with the position when the convention was adopted, those developments have not entailed a further intervention by the state into the ‘civil’ sphere of the individual’s life. The court considers that tax matters still form part of the hard core of public authority prerogatives, with the public nature of the relationship between the taxpayer and the tax authority remaining predominant. Bearing in mind that the convention and its protocols must be interpreted as a whole, the court also observes that art 1 of Protocol 1, which concerns the protection of property, reserves the right of states to enact such laws as they deem necessary for the purpose of securing the payment of taxes (see, mutatis mutandis, Gasus Dosier-und Főrdertechnik GmbH v Netherlands (1995) 20 EHRR 403 at 434, paragraph 60). Although the court does not attach decisive importance to that factor, it does take it into account. It considers that tax disputes fall outside the scope of civil rights and obligations, despite the pecuniary effects which they necessarily produce for the taxpayer.”

The suggestion that the approach in Ferrazzini is inapplicable because the money due under a PPN is not “tax” is unsustainable. The question is not a question of classification, but one of substance. The rationale for the approach in Ferrazini is that “tax matters still form part of the hard core of public authority prerogatives, with the public nature of the relationship between the taxpayer and the tax authority remaining predominant”. That is why tax disputes fall outside the scope of civil rights and obligations, despite the pecuniary effects they produce for taxpayers.

That rationale applies equally to a PPN. FA 2014 Schedule 32 para 6(3) provides that the accelerated partner payment is to be treated as a payment on account of the understated partner tax; and to the extent that the understated partner tax is paid before the accelerated partner payment, the latter is treated as having been paid to the same extent at the same time. The amounts due are as a matter of substance, payments on account of tax.

Save so far as penalties are concerned it is not even arguable that criminal charges are involved. So far as penalties are concerned however, there is a statutory right of appeal to the FTT against any penalty under FA 2014 and Schedule 32 para 7 read with s.226 Finance Act 2012 and paras 9-18 of Schedule 56 FA 2009. This satisfies any Article 6 obligations in that regard.

In any event, even if Article 6 did apply to the issuing of a PPN, the claimants have had access to an independent and impartial tribunal on judicial review. This avenue offers “full jurisdiction” to deal with their complaints, that being the relevant test: see Runa Begum v TowerHamlets LBC [2003] 2 AC 430.

Finally for completeness, I note that a number of points were referred to by counsel in their skeleton arguments and oral submissions and I was taken to many authorities and passages in the evidence. I have sought in this judgment to deal with what I consider to be the principal points raised. Both sides can be assured however, that I have carefully considered all the other points and all the authorities relied upon.

For all these reasons, despite the able and cogent submissions of Mr Southern and Ms Simor, these claims for judicial review fail and are dismissed: